Executive Briefings

The latest spate of auto recalls came last month when auto giants Honda, Nissan, Toyota and Mazda were focused to recall more than 3.4 million vehicles as a result of faulty air bags originating from Takata Corp in Japan. Since the initial announcement, BMW has come forward with a related recall action of more than 200,000 of their cars.

Auto recalls are nothing new. However, the frequency that they are occurring could raise concern among both customers and shareholders of the OEMs and Tier 1 suppliers. But what exactly is it that is driving these auto makers to have to recall their products time and time again?

In a business environment where brand loyalty drives repeat sales, it is critical that auto makers have the manufacturing processes in place to manage the global supply chain and control recalls quickly in order to reclaim confidence and loyalty among its customers. From a manufacturing and supply chain standpoint, the biggest issue in recalls today stems from the fact that there are far fewer suppliers today that are getting larger fulfillment contracts across more customers - and in North America that has eliminated excess capacity. This stresses a system that is already pushed to its limit trying to keep pace with technology innovation and new features that make today's vehicles more akin to high-tech computers on wheels.

As the complexity of vehicles continues to intensify, it is critical to have a highly flexible manufacturing operations platform supporting the management and execution of quality initiatives, as well as continuous improvement process programs. Every time a defect or new "bug" is discovered and understood, a process change will undoubtedly be required, kicking off a series of manufacturing operations process updates that must be designed, tested and then disseminated to the entire team, including suppliers and third-party contractors.

So why is it still so hard for auto makers to identify, track and isolate defects today? There is a combination of factors that relate to why it is still an issue today, even with all the technology we have in place.

One of those factors being that there is a higher level of synchronized processes in-plant, across plants and across supply chain partners. This in part is driven by the industry lessons learned since 2008. Suppliers are looking into the cost, quality, flexibility and efficiency more closely since 2008 and for good reason.

However, the biggest concern today is that most IT system investments in manufacturing have not maintained pace. Manufacturers have in place disparate, legacy systems (including the use of machine data and MS Excel spreadsheets) that were not designed to work together now tasked with supporting highly evolved interconnected processes within and across both OEMs and suppliers. Suppliers sometimes view collection of data for traceability and containment as an unnecessary cost mandated by the OEM customer instead of a risk mitigation action that can potentially save millions of dollars.

Even within a global manufacturing enterprise, shop floor systems for execution can be different from plant to plant and there is little commonality between partners outside of basic data file exchange. The hodge-podge nature of the current approach used by many suppliers and OEMs results in slower response times in trying to identify and isolate defects, both within the manufacturing network and in products already shipped. The existing systems are incapable of responding quickly as relevant data used to define potential defective part populations is parsed across many systems and many data models. Connecting all of this data together electronically, and in some cases manually, is time consuming.

The responsiveness problem exacerbated by the global nature of today's manufacturing and supply chain networks has to do largely because of three main factors:

"¢ Multiple plants building the same product

"¢ Multiple models being built from the same common vehicle platform, which results in larger part volumes. While this is great for cost and scalability leverage, it increases risk when a defect is found.

"¢ Multiple common products being built by multiple competitive companies. Case in point, GM and Ford recently announced that they are jointly developing new 9- and 10-speed transmissions.

So moving forward, what measures can manufacturers take to ensure a better and more proactive response to recalls? A major measure is for OEMs and suppliers to increase their investments in manufacturing systems. Instead of treating shop floor systems as a cost to be minimized, this area should be a strategic priority to address not only operational costs but risk mitigation. It goes almost without saying that the best way to minimize recall actions is to build the product right the first time, insuring the quality integrity of both part and process during manufacturing. And if a problem is detected post-delivery, the ability to identify, isolate and contain a defective part or correct an improper process across the entire manufacturing enterprise within a matter of hours is critical. This cannot be done with a patchwork of manufacturing systems left over from the '70s and '80s. It can only be done with a modern manufacturing execution platform that integrates both manufacturing and quality execution processes on a global scale. It is simply a case of "pay me now or pay me later".

The increasingly interrelated nature of the global automobile business also has an impact on the rise in the number of recalls. This is due to the fact that automakers are using the same vehicle platforms for more products in more markets around the world. And they are increasingly building those vehicles with the same commodity components used by other manufacturers. This can lead to a larger problem, and brings forth why more collaboration and data transparency is needed on a larger scale especially at the Tier 2 and Tier 3 supplier level. A small plant could become the epicenter of a critical global issue which is not unlike what we're seeing now with the airbag recall. Commoditization is great for leveraging economies of scale, but it creates a situation on the defect side where you've got to be that much more vigilant.

Although we can expect recalls to continue, putting these measures in place will help assure better flow throughout the supply chain, which can lead to a much better system and a much better response for auto makers to have when dealing with the effects of a large-scale recall.

Auto recalls are nothing new. However, the frequency that they are occurring could raise concern among both customers and shareholders of the OEMs and Tier 1 suppliers. But what exactly is it that is driving these auto makers to have to recall their products time and time again?

In a business environment where brand loyalty drives repeat sales, it is critical that auto makers have the manufacturing processes in place to manage the global supply chain and control recalls quickly in order to reclaim confidence and loyalty among its customers. From a manufacturing and supply chain standpoint, the biggest issue in recalls today stems from the fact that there are far fewer suppliers today that are getting larger fulfillment contracts across more customers - and in North America that has eliminated excess capacity. This stresses a system that is already pushed to its limit trying to keep pace with technology innovation and new features that make today's vehicles more akin to high-tech computers on wheels.

As the complexity of vehicles continues to intensify, it is critical to have a highly flexible manufacturing operations platform supporting the management and execution of quality initiatives, as well as continuous improvement process programs. Every time a defect or new "bug" is discovered and understood, a process change will undoubtedly be required, kicking off a series of manufacturing operations process updates that must be designed, tested and then disseminated to the entire team, including suppliers and third-party contractors.

So why is it still so hard for auto makers to identify, track and isolate defects today? There is a combination of factors that relate to why it is still an issue today, even with all the technology we have in place.

One of those factors being that there is a higher level of synchronized processes in-plant, across plants and across supply chain partners. This in part is driven by the industry lessons learned since 2008. Suppliers are looking into the cost, quality, flexibility and efficiency more closely since 2008 and for good reason.

However, the biggest concern today is that most IT system investments in manufacturing have not maintained pace. Manufacturers have in place disparate, legacy systems (including the use of machine data and MS Excel spreadsheets) that were not designed to work together now tasked with supporting highly evolved interconnected processes within and across both OEMs and suppliers. Suppliers sometimes view collection of data for traceability and containment as an unnecessary cost mandated by the OEM customer instead of a risk mitigation action that can potentially save millions of dollars.

Even within a global manufacturing enterprise, shop floor systems for execution can be different from plant to plant and there is little commonality between partners outside of basic data file exchange. The hodge-podge nature of the current approach used by many suppliers and OEMs results in slower response times in trying to identify and isolate defects, both within the manufacturing network and in products already shipped. The existing systems are incapable of responding quickly as relevant data used to define potential defective part populations is parsed across many systems and many data models. Connecting all of this data together electronically, and in some cases manually, is time consuming.

The responsiveness problem exacerbated by the global nature of today's manufacturing and supply chain networks has to do largely because of three main factors:

"¢ Multiple plants building the same product

"¢ Multiple models being built from the same common vehicle platform, which results in larger part volumes. While this is great for cost and scalability leverage, it increases risk when a defect is found.

"¢ Multiple common products being built by multiple competitive companies. Case in point, GM and Ford recently announced that they are jointly developing new 9- and 10-speed transmissions.

So moving forward, what measures can manufacturers take to ensure a better and more proactive response to recalls? A major measure is for OEMs and suppliers to increase their investments in manufacturing systems. Instead of treating shop floor systems as a cost to be minimized, this area should be a strategic priority to address not only operational costs but risk mitigation. It goes almost without saying that the best way to minimize recall actions is to build the product right the first time, insuring the quality integrity of both part and process during manufacturing. And if a problem is detected post-delivery, the ability to identify, isolate and contain a defective part or correct an improper process across the entire manufacturing enterprise within a matter of hours is critical. This cannot be done with a patchwork of manufacturing systems left over from the '70s and '80s. It can only be done with a modern manufacturing execution platform that integrates both manufacturing and quality execution processes on a global scale. It is simply a case of "pay me now or pay me later".

The increasingly interrelated nature of the global automobile business also has an impact on the rise in the number of recalls. This is due to the fact that automakers are using the same vehicle platforms for more products in more markets around the world. And they are increasingly building those vehicles with the same commodity components used by other manufacturers. This can lead to a larger problem, and brings forth why more collaboration and data transparency is needed on a larger scale especially at the Tier 2 and Tier 3 supplier level. A small plant could become the epicenter of a critical global issue which is not unlike what we're seeing now with the airbag recall. Commoditization is great for leveraging economies of scale, but it creates a situation on the defect side where you've got to be that much more vigilant.

Although we can expect recalls to continue, putting these measures in place will help assure better flow throughout the supply chain, which can lead to a much better system and a much better response for auto makers to have when dealing with the effects of a large-scale recall.